Financial Survey 2024-25: Why Indian traders ought to watch US inventory markets intently

The Indian inventory market’s resilience and growing retail participation are notable achievements. Nevertheless, the the Financial Survey 2024-25 warns that world headwinds– notably from america– could current important dangers in 2025.

With the US comprising 75 per cent of the MSCI World Index, any turbulence in its fairness markets might ripple via the worldwide monetary system, together with India.

Sentiment-driven rally and fragile optimism

In 2024, the US fairness markets surged for the second consecutive 12 months, pushed by strong company earnings and optimism amongst traders.

The S&P 500 index is about to document a 20 per cent annual acquire, buoyed by mega-cap expertise companies equivalent to Apple, Microsoft, and Nvidia.

Nevertheless, the elevated valuations of those shares, mixed with traditionally excessive CAPE ratios, sign warning.

The survey notes that sentiment-driven rallies usually falter throughout exterior shocks, equivalent to geopolitical occasions or financial slowdowns.

Investor confidence within the US is reportedly at an all-time excessive, but historical past reveals that sharp corrections usually comply with intervals of utmost optimism.

Implications for Indian markets

The Indian fairness market, which has witnessed an unprecedented surge in retail participation, isn’t any stranger to the affect of US market traits. The distinctive investor base on the Nationwide Inventory Trade (NSE) has tripled within the final 4 years, with internet inflows into equities reaching a document Rs 1.5 lakh crore in 2024.

Nevertheless, this elevated publicity additionally raises vulnerability. Traditionally, the Nifty 50 index has proven a powerful correlation with the S&P 500, notably in periods of serious US market corrections.

As an illustration, throughout the March 2020 sell-off, overseas portfolio investor (FPI) outflows of $8 billion triggered a 23 per cent decline within the Indian market. At the same time as Indian equities decouple from the US in some facets— equivalent to resilience to FPI outflows— the uneven relationship stays important.

The survey highlights that S&P 500 returns usually act as a number one indicator for the Nifty 50, underscoring the necessity for vigilance.

Dangers in 2025

The survey identifies the elevated valuations and investor sentiment within the US as a possible set off for a significant correction in 2025.

If such a correction happens, it might cascade into Indian markets, particularly given the inflow of younger, comparatively inexperienced traders.

Many of those contributors have by no means skilled extended market downturns, and a major correction might dent sentiment and family wealth.